Q1 2024 Midwest Energy Emissions Corp Earnings Call

Participants

Richard MacPherson; President, Chief Executive Officer, Company Secretary, Director; Midwest Energy Emissions Corp

Mike Meiosa; Financial Consultant; De Novo Group

Tim Quinlisk

Presentation

Operator

Good day, and welcome to ME2C Environmental first quarter 2024 earnings conference call. (Operator Instructions) This conference is being recorded today, May 16, 2024. A press release was issued prior to today's call on May 14, 2024, which provided the conference call and Webcast information for today and earnings press release was also issued earlier today.
On the call ME2C Environmental, Chief Executive Officer, Richard McPherson with [Mike Meiosa], De Novo Group.
Before we begin, we want to note that you should read the forward-looking statement in the company's earnings press release issued earlier today.
During today's call, management will make certain predictive statements that reflect its current views about future performance and financial results. The company bases these statements and certain assumptions and expectations on future events that are subject to risks and uncertainties. The company's periodic filings with the Securities and Exchange Commission list some of the most important risk factors that could cause actual results to differ from its predictions.
Please also note that this conference call may make references to adjusted EBITDA, a non-GAAP financial measure. The company views adjusted EBITDA as an operating performance measure and as such, the company believes the GAAP financial measure most directly comparable to its net income or loss. For further information, please refer to the company's periodical filings with the SEC.
At this time, I would like to turn the call over to Richard MacPherson, Chief Executive Officer of ME2C Environmental. Please go ahead, sir.

Richard MacPherson

Thank you, operator. And thank you all for joining us today for ME2C Environmental's 2024 first quarter earnings call. Today's call will cover our financials as reported in the Form 10-Q filed yesterday, May 15, 2024, as well as updates on our strategic growth efforts, which include the recent announcement of new management additions.
In short, we've achieved great progress this year from starting out financially very strong.
I'll turn the call over to Mike Meiosa, of the De Novo Group, the company's financial consultants, who assist in preparing all of our financial statements to review the financials for the quarter. Mike?

Mike Meiosa

Thank you, Rick. And many of the improvements were the direct result of the company's strategic renegotiation of a debt restructure agreement with our primary lender Alterna capital. The debt restructure agreement included a negotiated repayment of unsecured debt totaling $9 million and the repayment of secured debt of $0.3 million within three months, our total liabilities decreased by nearly $20 million from $28.3 million at December 31, 2023 to $8.8 million at March 31, 2024.
This debt repayment also dramatically reduced amounts owing related to the profit share liability. This profit share liability decreased from $17.6 million at December 31, 2023 to $7.9 million at March 31, 2024. This decrease in debt, further corresponded with a $90,000 decrease in interest expense for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.
The company ended the first quarter with $11.2 million of cash remaining on hand after this debt repayment. The company also had a working capital ratio of 2.5 to 1 measure and current assets to current liabilities. The remaining outstanding principal balance with our primary lender was also reduced by $960,000 from a dollar to dollar credit received from our facilitation of the sale of stock held by the lender.
This $960,000 was due to our primary lender as part of the negotiated debt restructure. Rather than pay the nearly $1 million due this quarter, the sale of the lender stock to a third party of long-term ME2C shareholders allowed our company to maintain a strong cash balance while further reducing our remaining debt balance.
In addition to our improved debt, the company also achieved higher product sales in our core business during this first quarter, which yielded higher revenues, profits and profit margins compared to the three months ended March 31, 2023.
Revenues increased by 18% to $3.6 million from $3 million. Gross profit increased by 42% to $1.4 million from $1 million and gross margin increased to 41%. Net loss for the three months ended March 31, 2024 was $2.6 million. Included in this net loss for the three months ended March 31, 2024, for the following non-cash expenses totaling $1,338,000 stock-based compensation of $770,000, amortization and depreciation of $62,000, non-cash interest expense of $241,000 and loss on the change in fair values of the profit share and unsecured note of $265,000.
I will now turn the call back over to Rick to continue today's call.

Richard MacPherson

Thank you, Mike, for a thorough review and for all your assistance with our quarterly financials. Now moving away from financials, I'll review updates in our other areas of growth and progress in new technologies.
As announced earlier this year, our foray into the new market with new technologies actively continues. We announced a new division WE2C Environmental, focused on potable water treatment technologies that utilize less coal-based activated carbons. Our novel server products, we'll address PFAS and PFOS. And these technical solutions will be more environmentally friendly and affordable for utilities than current alternatives.
Coupled with our own unique expertise in Sorbent Technologies and activated carbons for adding new team members that will ensure success in this new potable water market with highly innovative technologies, announced yesterday, May 15, Dr. David made that has been appointed the division director of WE2C Environmental.
Working closely with John Pavlish and Dr. Nicholas Lentz as well as our operations, VP Jim Trettel. we're preparing to introduce new technologies to the water market next year in support of the USEPA.'s recently announced regulations, which require that water each of these implement an approach to reach stringent limits on PFAS and PFOS and other contaminants.
We led the US coal-fired power sector in adhering to the USEPA.'s MATS regulations for mercury emissions and other types of toxins with our patented SEA technology. And we intend to do the same for these water treatment utilities, by developing and introducing disruptive new technologies. We have this specific skill set and know-how to support these utilities in reaching the regulatory requirements affordably with little impact to the plant operations.
And Dr. Mazyck is the right person to put at the helm of this division. Working in academia and industry for over 20 years. Dr. Mazyck work is supported by US EPA, the Department of Energy and NASA, Dr. Mazyck serves as the technological lead for the activated carbon currently license, by assume to be competitor and has developed activated carbon technologies currently commercialized by other major well-known water treatments, supply corporations.
Dr. Mazyck leadership position as Chairman for the American Water Works Association or AWWA for over 10 years heading various committees and trustee of the research division, further establishes pedigree in this industry from top policymakers to key industry players. And Dr. Mazyck on premiere of background as owner and operator of a successful activated carbon company in the southeast will further ensure that the WE2C division will provide growth opportunities that become real operations.
Our expansion into water treatment through WE2C will also be promoted through other areas of support that we're working to finalize in the near term, in addition to Dr. Mazyck will be bringing on new additions to our management team and to support our R&D efforts. Dennis Veronica has joined ME2C as our national Sales Director, supporting business development in the activated carbon market, we will feature his complete [BioOne] information early next week in a press release.
We are currently in process of establishing research laboratories for the development of our new technologies for water treatments. After many months of outsourcing our lab work. Our R&D experts, along with additional lab staff, will be working collaboratively in our own labs to ensure timely success in development of new activated carbon technologies.
And longer-term plan is to construct new production facilities to produce our activated carbon technologies for the potable water market. While in the early stages of development we'll be making development on milestone announcements as we move through the rest of 2024 and into the new year.
Our move into our potable water market is the main future growth of our company. We're committed to doing for water, what we've done for air, providing an environmentally friendly, highly effective, affordable smart business solutions.
Now beyond our water treatment, we can continue to consider our business plan for the emerging rare earth element technologies, through continued testing from the lab at the University of North Dakota academic experts in rare earths, we've made some very positive progress. We can continue to consider partnerships to move this important technology forward commercially. Our move into railroads extraction technologies is a longer term effort and secondary to the near term opportunities provided by the water treatment market. We will provide updates when appropriate as we consider our focus in this area.
As we move into this next quarter, midyear into 2024. We expect positive news related to our patent litigation. The bench trial with our defendants remains scheduled for late May, and we're very confident in our position in the outcome. Following the unanimous jury verdict received in March, awarding our company $57 million from willful infringement of our patents. Our outreach to coal-fired power plants continues. Now, with a strong legal precedent backing, our efforts will continue to protect the value of our patents for our company and our shareholders.
In summary, we're extremely well positioned better than we ever have to execute on exciting new growth opportunities that have realized significant business growth. We're actively working to reshape our company into a clean clip, a key leader in environmental technologies as well as a profitable publicly traded firm. As we increase our enterprise value in the US and Canada, we plan to move on to a larger exchange such as the NASDAQ or NYSE.
In closing, I'd like to acknowledge our management team, including Senior Vice President and Chief Technical Officer, John Pavlish, as well as Dr. Nicholas Lentz, in the effort to support our chemicals technical needs and especially our Vice President of Operations, Jim Trettel and all of their continued contributions and commitment to our success.
The addition of our new management, Tom partners is going to help us tremendously as we move into the water market and our partners at Caldwell Cassady Curry should also be recognized as their success thus far continues to move us forward in our core business and enhance our ability to bring new technicians in North America.
We further applaud the commitment to the support of our long-term shareholders are excited to provide significant share value moving through this year. Thank you all for your listening today and your continued interest in our company as we continue to grow. And with that, I'll turn the call back over to the operator to begin the question and answer session.

Question and Answer Session

Operator

(Operator Instructions) Tim Quinlisk, Private Investor.

Tim Quinlisk

Good afternoon, Rick. I had a question for you. The obviously the cash balance of Q4 into Q1 improved as a result of the settlement with AJ, Gallagher and DT. Can you speak to the the other element of the consideration of that of the settlement there in terms of ongoing kind of business opportunities with those existing and undrawn utilities in that group. In terms of them ultimately signing long-term contracts in if that's part of that consideration, when would you expect to see that materialize in terms of the as we go forward through the balance of '24 in terms of quarterly revenue growth?
And I have a follow-up on that question as well. Thank you.

Richard MacPherson

Sure. Thank you, Tim. Good question. So we have been active since the last trial, and before that actually in dealing with the power plants are still using our technology and need to keep using it. And so we're in the middle of negotiations with a number of power plants at this time. I do expect that we'll see some tangible results.
This quarter, which I would expect to see starting to show up in actual revenue increases in the third quarter of this year, I think that will be a growing situation through the rest of this year. I do expect that it may move into 2025 in terms of actual completion of contracts, but will start to show new revenues in Q3, and that will build through Q4 and continue to build through 2025.

Tim Quinlisk

Okay.
And then the follow-up question is the utilities underlying the defendants that you're still litigating against as well as sort of non lawsuit utilities that are using your technology, that negotiation process is sort of. Is it fair to say that that's on hold pending resolution of this, the bench trial here in terms of your ability to sort of forces these infringing utilities to enter into long-term contracts.

Richard MacPherson

I know there's nothing on whole nothing needs to be on hold. We are trying to find business based solutions to the outstanding use of our technologies that are under license, and we'll continue to do that. And so there are there are no litigation considerations at this time, just continued on business negotiations and none of that some is tied up in any litigation parameters at this time, nor do we see in the future.

Tim Quinlisk

Okay, great.
And then just briefly, I'll come back in the queue. On your website under the WE2C term page. It looks like you've put something out there suggesting that you're going to advance plans to construct a manufacturing facility to reduce the required materials.
Can you give us a sense of kind of the magnitude of the capital, the magnitude of the size you're talking about here as well as just if you could give us some context to understand what the portable market opportunity is and how you go about attacking it because it's a little bit unclear to me. Thank you.

Richard MacPherson

Yes, sure. So talking high level, the once the EPA regulations go into effect, they will have established a multi billion-dollar annual business. It will it will generate a terrific amount of growth in the industry. And we aim to be up and running and producing and selling material into that market, which comes to fruition in 2027.
But as we saw with the MAP program. A lot of people who tried to get ahead of the curve are actually doing it now. So any time from '25 onwards, that market will start to grow significantly and hit its peak in 2027. We expect to be operating and producing material on most likely in 2026, but we may also be able to enter the market sooner with some other on strategic business decisions that we're now contemplating.
And so without talking too much in detail about it, I think we will see revenue in 2025 from this business. And I think our game plan is such that we'll be a very strong long-term participant in the industry. We will start with home our continued and completing our research and development side for disruptive technologies, once we have that in place, then we will move forward on the time actual plays itself. And start selling directly into market through that.

Tim Quinlisk

Okay, great.
Thank you.

Operator

(Operator Instructions) And I would now like to hand the conference back over to Mr. McPherson for closing remarks.

Richard MacPherson

Folks, thanks very much for listening in today. With what's happening at this point in time, in particular the end of the month and the 31, with the bench trial. It's difficult for me to give on financial projections for the year until we pass that milestone. But I do very much expect that we will see significant growth this year over last year.
I think the first quarter is on very representative of the growth curve that we expect quarter-over-quarter as we go through the year. And I will be able to give a much more definite on expectation of that number on once we get to the next quarter's review with the bench trial and the $57 million win, certified one way or another by the court. So I'll leave it at that for now and look forward to bringing news in our development.
Our resources and our cash are at an all-time high. We've got great new additions to the company and we are moving forward into the water business as well as continue to build on our core business. Look forward to bringing those numbers to you on after this next quarter, I expect they will be significantly improved on much as the first quarter has been.
Thank you very much for joining us today.

Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.